An athame is usually a double-edged blade with a black or darkhandle. It looks a bit like a miniature sword. (Swords are sometimes used too, for the same purposes as an athame, but they are not as common and are usually used by a leader of a gathering.) The athame is aligned with the maleenergy (the God) and the element of Fire (which is aligned with the south), except in some traditions when it is aligned with the Air and the east. This knife is not used to cut anything, except sometimes a magickal door out of the circle and in really special situations a few other things, some will say. Rather, it's used as a way to focusenergy and make it go where you choose. Most people hold it in the projective hand (the right for most people; often the dominant hand) and visualize this tool conducting power or energy (or anything) to its desired place. Some use it for invoking purposes but I like the wand better for that.

The athame is sometimes called the "black-handled knife" because some traditions say it must have a black handle. Some say it is best to make the handle yourself, and even the blade if you can; Raymond Buckland's Complete Book of Witchcraft includes instructions on how to do so. Others are not so optimistic about the crafting skills of most people in today's society and say it's fine to buy it, as long as you choose one that feels right to you.

In some traditions, the athame must NEVER be used to cut anything physical, only to direct or cut energy. These traditions also have a bolline or "white-handled knife" for other magickal uses, such as cutting herbs.

Others use only the athame and say it can be put to any ritual use, such as carving letters into candles, but should never be used for any non-magickal use.

Then there are the kitchen witches, who will prepare food with the athame, because after all, food is magickal too.

As well as being used to direct energy, the athame is also a symbol of the God or masculine energy. It is paired with the cup or chalice, which represents the Goddess or feminine energy. A ceremony called the Great Rite involves inserting the athame into the chalice as a symbol of Their union. (Some groups instead observe the Great Rite more directly: the priest and priestess have sex.)

Many traditions also associate a tool with each element: a pentacle for earth, the athame for air, a wand for fire, and the chalice for water. As swankivy says above, the wand and athame associations can be switched; this is actually a bit of a debate in tarot, where some decks use wands (or rods or staves) for fire and others use them for air. (Most decks have swords or some other sharp implement instead of athames.)

The athame is an incredible tool for directing power within the circle. One of the reasons for it being double-egded is because not only can the athame be used to send energy out to create the circle, but it can also be used to collect that same energy to banish the circle.

In order to cast the circle, I would take my athame and walk around my altar 3 times in a clockwise direction, otherwise known as deosil. This movement sends energy out from one side of the blade.

In order to banish the circle, I would walk about my altar in the opposite direction, that is to say counter-clockwise or widdershins. This movement collects the energy that was used to create the circle with the opposite side of the blade.

The athame can also be used to cut a doorway in the circle in order to leave it for a short period of time.

The athame should not be used to do any actual cutting, however. Wiccans sometimes use another blade for any actual cutting within the circle, and it is usually a white handled knife called a bolline.

For weapon skill purposes, Athames are considered Daggers. As with all daggers, Rangers, Rogues, Tourists, Valkyries and (naturally) Wizards have chance of achieving the Expert mastery.

It is not a weapon meant for bloodbaths! Hit bonus +2, Damage d4 (small monsters) / d3 (large monsters). Average damage 2.5 against small monsters, 2 against large ones. So, I really don't suggest you run into a city full of hostile nasties with this weapon, even when you're absolutely positive. No wonder famouswizards trusted swords more =) The game has a lot worse weapons, though.

Justification for existence? Well, you can do Magic Stuff with it better than with other weapons!

An uncursed/blessed athame doesn't get dull when you do magic stuff, so you can #engrave words on floor with it, fast (one turn), without being concerned of its sharpness (it's the only weapon that won't get dull when you #engrave). When faced with a horde of disgusting little thingies, nothing makes them run away faster than seeing A Fearsome Name scrawled all across the floor!